Slowest growth in services sector since 2016

Output from the UK services sector rose at the slowest pace since September 2016.

The closely watched IHS Markit / CIPS UK Services Purchasing Managers’ Index, shows that the services sector declined from 54.2 in December to 53 points in January. The slowdown in growth of services activity across the UK stemmed from relatively weak gains in new work, the report reads.

Some companies saw a slight increase in inflow of new business in January, although the overall rate of expansion was slower than that seen during most of 2017, with the exception of September and December. Some panellists indicated that growth continued to be hindered by Brexit-related uncertainty.

Job creation nonetheless picked up as companies retained positive expectations surrounding the outlook. Although the latest results revealed an easing of inflationary pressures, rates of increase in both input costs and output charges remained above their long-run trends.  

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, comments: “Brexit blame has emerged once again as the reason for the slowdown in growth of services activity, which was at its lowest since September 2016 as consumers reined in spending and displayed anxieties about the future.

“However, this lack of confidence appeared to be at odds with companies as there was a significant rise in business expectations to the highest for almost a year. Some firms were also discounting to remain competitive and launching new products, which is a strong indicator that businesses expect consumers to start spending again soon.

“But it is the impact of rising costs that will place a further strain on business profits as costs continued to rise as a result of the weak pound, and the sector had higher costs for fuel, salaries and food to contend with. Despite another rise in employment, the biggest since September, higher salaries continued to be a burden to the bottom line as recruiting skilled staff remained difficult.

“Some companies were comfortable with passing on their higher costs to consumers, the majority decided to take the hit themselves. However, there will be a tipping point where profit margins cannot take the strain any longer and prices to consumers will rise further, so this spending blip could become a more entrenched position.”

In this rapidly changing economic landscape, it is essential that all business owners and managers be aware of income and expenditure by keeping proper records and monitoring trends and patterns. Profit and loss accounts will help you understand how your business is progressing, as well as alert you to any potential issues which might arise, giving you ample warning to rectify the problems or make the necessary adjustments to keep your business on track and successful.

At Beavis Morgan, our specialists to SMES are available to provide general business advice and to structure your business for tax. We can also assist with long and short-term forecasts, budgets, business plans, sensitivity analysis, and calculating and checking compliance with covenants.

Contact Steve Govey or your usual Beavis Morgan Partner for further information about how we can assist you and your business.